Yuandi research paper, I want to do more

Yuandi Wu 19402

Hanbo Xing 11864

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Chan Zheng 18834

Risk
Management in Start Ups

         
Nowadays, more and more people choose to build their own business.
Especially in Silicon Valley, there are many start ups. Some of them get
success, however, most of them failed. Half of them fail after five years. In
the research paper: Success and Risk Factors in the Pre-Startup Phase, Marco
give a reason why the failure rate of startups is so high. He says, “One
important reason is the lack of a representative sample: nascent entrepreneurs
are unregistered, which makes them difficult to sample in comparison to small
business owners. In my research paper, I want to do more study on start ups.
The research question is that what is the main reason of the high failure rate
of startups and how the risk management apply in startups? The hypothesis is that
risk management is very important in startups, and it can decrease the risk of
failure.

         
First, we need to know the life cycle of startups. According to the
research paper Startup Companies-Life Cycle and Challenges. There are three
stages of startup’s life cycle. The first one is called bootstrapping stage. It
is including individual effort, family and friends, low investment, and angel
investor. The second stage is called seed stage, it focused on team work,
valuation, average investment, accelerators, incubators, and so on. The last
stage is called creation stage. It is including organizational arrangements,
corporate finance, high investment, and venture capital.

         
Most of startups fail because of the challenges. The main challenges of
startups are financial challenges, human resources, support mechanisms, and environmental
elements.  The most important one is
financial challenges, because in the first three years, startups revenue will
be low, if they don’t have strong financial support, they cannot survival.   

        
Usually, the beginning is the hardest part of everything. So, company
should lower the risk at beginning. How to analysis risk? According to the
research paper, Cognitive Biases, Risk Perception, and Venture Formation: How
individuals Decide to Start Companies, “cognitive biases directly
influence risk perception, and risk perception directly influences he decision
to start a venture, then cognitive biases indirectly affect the decision
through their effect on risk perception. In other words, risk perception
mediates the relationship between cognitive biases and the decision the start a
venture”. So, the first step is to analysis the risk of build a startup
and then decide which risk management method can be used.

        
As a leader in startups, you need to know the uncertainties you are
facing. According to the research paper, Managing Complexity and Unforeseeable
Uncertainty in Startup Companies: An Empirical Study, “The challenge that managers
of novel projects must deal with is not only Knightian uncertainty, or the lack
of knowledge about probabilities, but even unforeseeable uncertainty, or the
inability to recognize and articulate some of the relevant variables themselves
and their functional relationships”.  

         
There is a key concept in startups-innovation. Innovation can led more
investment, so there should be more revenue because of high risk and high
return. According to the research paper, Investment cycles and startup
innovation, ” We find that firms that are funded in hot times are more
likely to fail but simultaneously create more value if they succeed. this
pattern could arise if more risky and novel firms are funded in hot
times”.

         
In conclusion, if a person want to build a start up, he need to so the
risk analysis first. Then use risk management method to lower the risk. There
are the best ways to avoid failure.

 

 

 

 

 

 

 

 

 

 

 

 

 

Reference:

Macro Van Gederen. 2005. Success and Risk
Factors in the Pre-Startup Phase

Aidin Salamzadeh. Startup Companies-Life
Cycle and Challenges

Mark Simon. Cognitive Biases, Risk
Perception, and Venture Formation: How individuals Decide to Start Companies

Svenja C. Sommer. 2009. Managing Complexity
and Unforeseeable Uncertainty in Startup Companies: An Empirical Study

Ramana Nanda. July 6, 2013. Investment cycles
and startup innovation

 

 

 

 

 

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